# 4270 4277 4271 4516 4279 3972 debtequity noteb

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Unformatted text preview: llowing equations. Note A: Note B: Note C: \$37,566 \$50,000 \$45,027 = = = [\$50,000 (1 + i)­3] [\$50,000 (1 + i)­3] + {\$5,000 [(1 ­ (1+ i)­3) ÷ i]} [\$50,000 [(1 + i) ­3] + {\$3,000 [(1 ­ (1+ i)­3) ÷ i]} The second way is by trial and error. Plug an interest rate into the equations until the right­hand side of the equation equals the left­hand side. The annual effective interest rate is 10%. b. Interest Expense (Note A) Interest Expense (Note B) Interest Expense (Note C) Year 1 \$ 4,502.70d 3,756.60a 4,132.26b 5,000.00 4,545.14c 5,000.00 12,434.00 Year 2 \$ 5,000.00 \$ 15,000.00 \$ 4,652.97e Year 3 4,817.33f \$ 13,973.00 Total Interest Expense a \$3,756.60 b \$4,132.26 c \$4,545.14 d \$4,502.70 e \$4,652.97 f \$4,817.33 c. = = = = = = = \$ Book Value at Beginning of Period Effective Rate Initial Book Value of \$37,566 10% (\$37,566 + \$3,756.60) 10% (\$50,000 – \$37,566) – (\$3,756.60 + \$4,132.26) Initial Book Value of \$45,027 10% [\$45,027 + (\$4,502.70 – \$3,000.00)] 10% (\$50,000 – \$45,027) – (\$4,502.70 – \$3,000.00) – (\$4,652.97 – \$3,000.00) + \$3,000 Note A Return Year 1 Year 2 Year 3 Total \$ \$ Expense 4,507.92a 5,048.88b 5,654.73c 15,211.52 Income \$ \$ 3,756.60 4,132.26 4,545.14 12,434.00 \$ \$ 751.32 916.61 1,109.59 2,777.52 a \$4,507.92 = \$37,566 12% b \$5,048.87 = (\$37,566 + \$4,507.92) 12% c \$5,654.73 = (\$37,566 + \$4,507.92 + \$5,048.87) 12% P11–5 Concluded Note B Income Year 1 Year 2 Year 3 Total Return \$ \$ 6,000.00a 6,720.00b 7,526.40c 20,246.40 Expense \$ \$ 5,000.00 5,000.00 5,000.00 15,000.00 \$ \$ 1,000.00 1,720.00 2,526.40 5,246.40 a \$6,000.00 = \$50,000 12% b \$6,720.00 = (\$50,000 + \$6,000) 12% c \$7,526.40 = (\$50,000 + \$6,000 + \$6,720) 12% Note C Income Year 1 Year 2 Year 3 Total Return \$ \$ 5,403.24a 6,051.63b 6,777.82c 18,232.69 a \$5,403.24 = \$45,027 12% b \$6,051.63 = (\$45,027 + \$5,403.24) 12% Expense \$ \$ 4,502.70 4,652.97 4,817.33 13,973.00 \$ \$ 900.54 1,398.66 1,960.49 4,259.69 c \$6,777.82 = (\$45,027 + \$5,403.24 + \$6,051.63) 12% d. Total Debt = Current Liabilities as of 12/31/12 + (Long­Term Liabi...
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## This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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